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Sydney, 13 July 2012: Despite subdued market activity, the first half of 2012 has revealed a number of clear trends that have emerged in public M&A deals as the new financial year gets underway.

According to THE REAL DEAL 2012 Half-Yearly Update (PDF594.7KB), the energy and resources sector and foreign bidders continue to dominate public M&A activity, which is down almost 30% this half compared to the same period in 2011. Only 22 deals with a transaction value over $50 million were announced in the first six months of this year, compared to 31 deals in the first half of 2011.

Clayton Utz Corporate / M&A partner Karen Evans-Cullen said that private equity had been active in the public M&A arena, with a number of private equity 'bear hug'[1] approaches to boards in 2012. Although these approaches had resulted in only one formally announced deal to date, she expected target boards would show a greater willingness to engage with private equity in the second half of the year. "A major driving factor will be the experience of a number of private equity targets now trading at significant discounts to the indicative offers that have recently been made and which have not proceeded to an agreed transaction, accompanied by much higher levels of shareholder activism around any such proposals," said Karen.

Foreign bidders also continue to dominate public M&A activity, accounting for 73% of all deals in the first half of 2012 compared with 64 in 2011. Chinese bidders have overtaken the US as the most active in the Australian market, with Canadian bidders also increasingly prominent. The energy and resources sector accounted for almost half the foreign deals this year, although foreign bidders have also been active in the capital goods, biotechnology and real estate sectors.

2012 has also been marked by increased regulatory focus on fundamental takeover law principles, including the creep rule (under which shareholders can increase their shareholdings above 19% by 3% every 6 months), continuous disclosure obligations, the proper response of boards to bear hug approaches, and truth in takeovers.

"The recent takeover approach to David Jones, for example, has highlighted issues around 'bear hugs', and companies' continuous disclosure obligations," said Corporate / M&A partner Jonathan Algar. "It has demonstrated that companies need to exercise a considerable degree of caution before announcing approaches that are purely speculative – that is, before engaging in a bear hug by making a takeover approach public, targets need to be sure they are really dealing with a bear and not a sheep in bear's clothing." Responses to takeover approaches appears to be on ASIC's hit-list of takeover reforms it has said it will be discussing with Treasury.

THE REAL DEAL (PDF464.2KB) is based on an in-depth analysis by Clayton Utz's M&A team of all Australian public company deals valued at over $50 million. It provides an unparalleled depth of insight and analysis into public M&A deal structures, tactics adopted by targets and acquirers, and developments shaping the future of the Australian M&A market.

[1] Bear hugs are unsolicited takeover approaches which are publicly disclosed. They are often used to bring the proposal to the attention of target shareholders in the hope they will pressure the board to negotiate with the bidder. With the number of hostile takeover bids in decline in recent years, the bear hug approach appears to be replacing the hostile takeover bid. 45% of the scheme transactions in 2011 started with a bear hug proposal; 33% of deals in 2012 to date have commenced with a bear hug approach that was made public. Back to article

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.